What are the options to improve net working capital?
Net working capital is a measure of a company’s liquidity and short term financial health. In its simplest formula, it is the difference between the business’s current assets and current liabilities.
A company’s current assets will typically comprise cash, trade receivables (issued but as yet unpaid invoices), accrued income and inventory.
When looking to improve net working capital, business leaders will have a number of operational levers that they can pull and will develop a strategy relevant to their circumstances. Whilst seeking out operational efficiencies is always a good idea, implementing a performance improvement plan takes time. There is one option that is available to all companies in their bid to improve net working capital quickly: increase the amount of cash.
How do you do this? You may be surprised to read that simply selling more products and/ or services doesn’t work! This is because every customer will have payment terms which typically last between 14 and 120 days (or even longer) so, while the top line looks great, the cash in the business hasn’t improved. In fact, if you are a wholesaler or a manufacturing company, it is likely to have worsened as you find yourself spending your cash on inventory to satisfy your fantastic new orders.
There are two ways to quickly access more cash, one obvious, one less so. The first is to inject cash from an external source, most likely in the form of a loan. This can be a great option, particularly in recent times when the cost of borrowing has been at record lows. If the cost of servicing the loan (comprising set up costs and interest payments) is more than covered by the income it generates, it’s doing its job and working well.
However, there is an even better way which is less often considered: waking up the dormant capital that is already on your balance sheet. How? Simple! You take those as yet unpaid invoices (your trade receivables) and turn them into cash through invoice finance.
A lot of people have been put off invoice finance by the perception that it takes as long to apply for as a loan, is even more complex and cumbersome to manage, and costs just as much. Well, we are delighted to tell you that this is no longer the case! At Hydr, we have created a proposition that is quick to apply for, extremely easy to manage through class leading software and is fairly priced too. Unlike almost all our competitors, we fund 100% of the value of your invoices for a fee that is fixed and fair, and we pay you the cash within 24 hours. We give decisions in real time and onboarding can take as little as 15 minutes. We credit insure every invoice (as part of our fee) and our class leading integration with Xero means that you are always in control.